THE Finance Ministry is unlikely to relent to industry demands for extending input tax credit on the Cenvat duty paid by a dedicated third party manufacturer against the service tax payable by a marketer or a distributor on advertising, sales promotion, and market research expenditures incurred by them.

India Inc had recently brought to the notice of the Finance Ministry the existence of dedicated and exclusive third party manufacturing supply arrangements in different sectors, especially FMCG sectors.

It had sought extension of input tax credit on the Cenvat duty paid by a dedicated third party manufacturer against the service tax payable by the marketing company for services such as advertising, market research, and sales promotion.

The Finance Minister, Mr P. Chidambaram, had in his Budget speech in July this year proposed a major step towards integrating the tax on goods and services.

He also announced an extension in credit of service tax and excise duty across goods and services.

But, many FMCG companies discovered that they could not benefit from this announcement in situations where they were procuring manufactured products through dedicated third party manufacturers (job workers in the parlance of Finance Ministry).

Official sources pointed out that, third party manufacturers are independent legal entities and therefore the extension of credit between goods and services would not be available where more than two entities are involved.

Similarly, importers of finished goods who have forked out countervailing duty (CVD) may not be permitted to claim Cenvat credit on the CVD paid by them for service tax payable on advertising, sales promotion and market research.